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Two Measures of Utility – Explained!

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If a given quantity is present in different goods in such a way that they may be arranged in an order of preference by saying that they possess it to greater or less degree, it is said to possess ordinal quantity. When utility is conceived in terms of greater or less, it is expressed ordinally.

Therefore, the ordinary utility concept implies that any set of welfare positions can be arranged in a unique and consistent order of ascending preference. Either an individual or household derives satisfaction or utility from each goods or service consumed during a given time period.

The consumer must be able to compare alternative budgets of bundles of goods and determines his order of preference among them. This ranking can be done in either of two ways, cardinally or ordinally. Cardinal numbers such as 1.2.3. While ordinal numbers are adjectives such as first, second, third. When objects are ranked cardinally and assigned associated cardinal numbers one may obtain a unique measure of the difference if the ranking.

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A customer may rank a group of objects in the order first, second, third but this ranking says nothing about how much more one prepares the first to the second, the second to the third etc. Ordinal” refers to the fact that only the ranking of commodity bundles by the consumers is involved in determining the values assigned to particular bundles.

A utility indicator or ordinal if any increasing transformation of a utility indicator is also a utility indicator. By an increasing transformation is meant any change in the set of utility numbers assigned to goods bundles such that if the numbers are arranged in ascending or descending order, each number has the same position before and the after change. In this method the consumer’s ranking over commodity bundles, as well as the intensity with which he prefers one bundles to others is considered when describing his preferences.

An indifference curve is a locus of various combinations of the two commodities which yield the same total satisfaction to the consumer. The consumer is indifference towards any of these combinations of the two goods as they yield him same total satisfaction. On a given indifference curve, all combinations of the two goods are equally desirable. Thus, the consumer can move along the curve anywhere.

Therefore, the consumer can slide up as well as ailed down the indifference curve. Hence, any point on this indifference curve gives the same total satisfaction to the buyer.

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Indifference curve has been defined by different economists with a little variation:

“An indifference curve is a locus of points or combination of goods each of which yields the same level of total utility or to which the consumer is indifferent. Thus, it is Iso- utility or to which the consumer is indifferent.”

—Prof. C.E. Ferguson

The locus of all commodity combination from which the consumer derives the same level of satisfaction forms and indifference curve.”

—Henderson & Quandt

“Indifference curve is such a control line over which the consumer derives the same level of satisfaction over all points lying on this line.”

—Left Which

“An indifference curve may be defined as a curve of various combinations of two goods that will be equally satisfactory to the Individual concerned.”

—A.L Meyers

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The concept of scale of preferences forms the basis of the indifference curve analysis. Scale of preferences implies that a consumer can conveniently arrange the various combinations of two or more goods available to him in order of preferences. The various combinations are so arranged in order to show different levels of satisfaction, each level of satisfaction being market in ordinal numbers as first, second, third and so forth.

The different combinations of two commodities on the scale of preferences would get the consumer equal satisfaction. Thus, a buyer would be indifferent towards the different combinations on the same scale of preference, because these different combinations would get him equal satisfaction and there will be no point for him to prefer one combination to another on the same scale of preference.

Thus, an indifferent curve is geometrical representation of a consumer’s scale of preferences. Any number of combinations, of the goods A and B located on an indifference curve will show a similar level of satisfaction to the consumer. Thus, an indifference curve is a curve on which all the combinations of two goods give a consumer equal satisfaction; a consumer is indifferent towards different combinations located on such curve.